| The media is full of bad news about the economy | | | | volatility, this is absolutely essential, as even a couple |
| --the mortgage meltdown, multiple bank failures, auto | | | | of minutes of indecision while you're caught up in the |
| makers on the brink, and a stock market swinging | | | | paralysis of analysis could cause you to leave |
| out of control. Through all the chaos, there is still one | | | | hundreds or even thousands of dollars on the table. |
| investment vehicle that can provide consistent | | | | One of my favorite technical indicators is the |
| profits. | | | | exponential moving average. This indicator plots an |
| I'm talking about day trading, or more specifically, | | | | average of price action for a given number of time |
| intra-day trading. I'm not talking about trading of | | | | periods leading up to the present moment. For |
| individual stocks. Rather, I am referring to trading of | | | | example, if you are using a five minute chart, a |
| e-mini contracts on the Dow and S & P 500 | | | | 20-period EMA will plot an average of the last 20 |
| indexes. As the name implies, the e-mini is simply a | | | | five-minute time segments. In general, the longer |
| scaled down version of the "big board" indexes, | | | | period of EMA, the longer term of the overall trend is |
| which allows the small investor to participate. Part of | | | | plotted. You can actually make trades based just on |
| the beauty of the e-mini is that it literally thrives on | | | | the price chart and one EMA. The idea here is that if |
| volatility, and as such, is an ideal investment vehicle in | | | | the price remains above the EMA, the trend is up. If |
| today's chaotic economic climate. | | | | the price stays below the EMA, the trend is down. |
| Day trading involves the same two types of analysis | | | | More importantly, if price changes direction, and |
| as conventional trading: | | | | crosses the EMA, that can be a sign of a reversal |
| 1. Fundamental analysis | | | | which may signal an entry or exit point in a trade. |
| 2. Technical analysis | | | | You can also use more than one EMA, though I |
| Fundamental analysis involves taking into account | | | | never use more than three. Typically, one could use |
| various economic news that may be happening on a | | | | one long EMA and one short EMA, such as a 5-period |
| particular day, such as economic reports, statements | | | | combined with a 15 or 20-period. In this case, you |
| from the Fed, basically anything that affects the | | | | would not only look for prices crossing the EMA, but |
| economy. You can find out this information either by | | | | also look for where the shorter EMA crosses the |
| just watching financial channels on TV, or consulting | | | | longer one. This can give you a little more accurate |
| the various economic event calendars, which are | | | | entry or exit point. You can take this one step |
| freely available on the Internet. | | | | further and use a third EMA. For example, I have |
| Technical analysis involves the use of technical | | | | experimented with various combinations, like a |
| indicators on price charts. This gives the trader a | | | | 5-15-50, or a 5-50-100. |
| much more detailed insight into the price actions | | | | I would recommend just grabbing a free chart from |
| going on at any given time. It can also be one of the | | | | one of the many sources on the Internet, and just |
| biggest obstacles to successful trading, if you overdo | | | | experiment with plotting different EMA's to see how |
| it! In fact, the simpler you keep your technical | | | | they interact with price action. You might just find a |
| analysis, the more likely you are to make successful | | | | unique combination that's just perfect for your own |
| trades in a timely manner. During times of extreme | | | | trading situation. |